Big Lots Rallies Higher

Zacks Equity Research
June 3, 2014

Big Lots Inc. (BIG) is riding high following better-than-expected first-quarter fiscal 2014 results. The retailer hit another new 52-week high of $43.30 on Jun 2, 2014 after touching new high on the previous day as well.

The quarterly earnings from continuing U.S. operations came in at 50 cents per share, way ahead of the Zacks Consensus Estimate of 44 cents per share. Big Lots reported net sales of $1,281.3 million, up 1.1% year over year and was ahead of the Zacks Consensus Estimate of $1,267.0 million.

Moreover, the company posted positive comparable-store sales (comps) after 8 consecutive quarters of negative comps. More importantly, the company posted narrower-than-expected loss from the discontinued Canadian operations benefiting from favorable settlements on lease terminations and additional deferred tax benefits. Loss came in at 44 cents per share as against expectation of 64–71 cents per share.

The company’s initiatives to pull back from the unprofitable Canadian markets, shut the underperforming locations and expand into high growth avenues (furniture financing and food consumables category) worked in its favor as reflected in a better quarterly performance and renewed investor interest in the stock.

As a result, management provided guidance for a higher operating cash flow of $170 million for 2014 as against $165 million expected earlier.

The furniture business is likely to be extended to most of the stores (1,300 stores or 85%) as the business has experienced high single to low double-digit increases in the last six months making it a profitable option. Further, food and consumable category has displayed strong same-store sales (up in mid single-digits) for the past two quarters, making it another profitable avenue.

Therefore, the company has actively been rolling out its cooler/freezer program to expand merchandise of food-related items and target food stamp recipients. It intends to cover 600 stores in 2014, bringing the total number of stores with cooler/freezer capacity to 700.

Moreover, the company has undertaken several initiatives to reinstate itself on the growth trajectory, which include store remodeling, “Edit to Amplify” merchandising strategy and developing its e-Commerce capabilities to cater to the changing trends.

Currently, Big Lots caries a Zacks Rank # 3 (Hold).

Apart from Big Lots, other stocks like The Walt Disney Company (DIS), Kellogg Company (K) and Hanesbrands Inc. (HBI) reached new 52-week highs of $84.42, $69.37 and $85.17 respectively, on Jun 2, 2014.

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